Author: Chris Boggs
Protests, civil disobedience, riots, and looting followed the death of George Floyd under the knee of a Minneapolis police officer. Mayors of several cities publicly stated that many protestors arrested were from other states; the presumption being they were sent to instigate the riots that grew out of the protests.
As the weekend of protests was coming to an end, President Trump tweeted that ANTIFA will be named a terrorist organization. Regardless of Trump's authority to designate any group or body a terrorist organization, the ears of the insurance industry perked up; might the terrorism exclusion apply to any damage caused during these protests and ultimate riots?
Answering this question is initially more difficult than it appears. First, there are approximately 38 ISO exclusionary endorsements (this is true, not hyperbole for effect); and second, none of these endorsements require the damage to be done by a “terrorist." In fact, the word “terrorist" is nowhere in any of the endorsements.
Understanding that “It depends" is an appropriate answer to any question regarding the applicability of the various terrorism exclusions, it's not a satisfying answer. An attempt to provide a more concrete answer is contained in the following paragraphs. If you want to skip all the background and reasoning, jump to the end of the article to discover if the damage caused by actions of the protestors and rioters is subject to any of these TRIA-based exclusionary and limitation endorsements.
Fortunately, only nine of the 38 listed exclusionary or limiting endorsements presently apply. Choosing which of the nine endorsements is or are used is based on the date when the property coverage is written and the breadth of coverage desired.
Note, this article addresses the exclusionary/limiting endorsements only. Endorsements specifically extending coverage are NOT discussed.
Date When Property Coverage is Written
TRIA, initially authorized in 2002, and after being reauthorized in 2015 was set to expire on December 31, 2020. However, on December 29, 2019, President Trump signed the Terrorism Risk Insurance Program Reauthorization Act of 2019 extending the program until December 31, 2027. Because the program is not perpetual, requiring regular reauthorization, the available exclusionary and limiting endorsements are required to be “anticipatory" – meaning they must anticipate the program being in full effect during the entire policy term, the program expiring during the policy term, or the expiration of the program without reauthorization. Each of these three potentials and the endorsements that respond to them are discussed in the following paragraphs.
Because the current act is in full force until December 31, 2027, any property policy that expires anytime before December 31, 2027, is “guaranteed" to fall under the protection of the act. For any property policy expiring prior to December 31, 2027, one of three exclusionary or limiting endorsements is used:
- Exclusion Of Certified Acts Of Terrorism Endorsement (IL 09 53 01 15): This endorsement is attached to fully exclude coverage for “certified acts of terrorism."
- Exclusion Of Certified Acts Of Terrorism Involving Nuclear, Biological, Chemical Or Radiological Terrorism; Cap On Covered Certified Acts Losses Endorsement (IL 09 86 0 15): This is attached to exclude coverage for “certified acts of terrorism" but only when such acts qualify as a nuclear, biological, chemical or radiological event. Other “certified acts of terrorism" are covered.
- Limitation Of Coverage For Certified Acts Of Terrorism (Sub-Limit On Annual Aggregate Basis) Endorsement (IL 09 87 01 15). This endorsement is used to limit coverage for “certified acts of terrorism" by providing coverage on a sub-limited bases subject to an annual aggregate.
ISO was also required to create endorsements in anticipation of property policies that expired after the current act expires. Although it is assumed the Act will be reauthorized prior to the end of 2027, this is not guaranteed. Carriers needed the ability to address this possibility.
For any property policy scheduled to expire after the expiration of the current act (meaning the policy expires after 12/31/2027), a second endorsement in addition to one of the three listed previously is attached. Exclusions and limitations in these mid-term-loss of TRIA endorsements mirror those in the above listed endorsements.
- Conditional Exclusion Of Terrorism (Relating To Disposition Of Federal Terrorism Risk Insurance Act) Endorsement (IL 09 95 01 07) is attached to exclude terrorism coverage. The IL 09 95 can be used in combination with IL 09 53.
- Conditional Exclusion Of Terrorism Involving Nuclear, Biological Or Chemical Terrorism (Relating To Disposition Of Federal Terrorism Risk Insurance Act) Endorsement (IL 09 96 01 07) is attached to exclude coverage for terrorism that involves nuclear, biological or chemical materials. Use of this endorsement leaves coverage intact for terrorism that does not involve nuclear, biological or chemical material. This endorsement is coupled with IL 09 86.
- Conditional Limitation Of Coverage For Terrorism - Sub-Limit On Annual Aggregate Basis (Relating To Disposition Of Federal Terrorism Risk Insurance Act) Endorsement (IL 09 97 01 07) is attached to provide coverage for terrorism subject to an annual aggregate sub-limit. This endorsement is used along with IL 09 87.
Wording in these endorsements directly address the operational state of TRIA. If TRIA is in effect, these endorsements do not apply; if TRIA expires, these endorsements are triggered.
Essentially, these mid-term-TRIA-cancellation endorsements remove the requirement that the damage be caused by a “certified act of terrorism," stating simply that coverage is excluded or limited for an act of “terrorism." While TRIA is in effect, only “certified acts of terrorism" are excluded. Upon expiration of the current or any future versions of TRIA, the action must only meet the definition of “terrorism" found in the endorsement.
ISO's final list of endorsements addresses policies written in the absence of TRIA. If TRIA expires at the end of 2027 and is not reauthorized, any property policy written in the absence of the program is likely subject to these endorsements. These endorsements mirror the exclusions and limitations of those described above:
- Exclusion Of Terrorism Endorsement (IL 00 30 01 06) is used for fully exclude “terrorism" claims.
- Exclusion Of Terrorism Involving Nuclear, Biological Or Chemical Terrorism Endorsement (IL 00 31 01 06) is attached to exclude coverage for terrorism that involves nuclear, biological or chemical materials. Any act of terrorism that does not involve nuclear, biological or chemical material is NOT excluded.
- Limitation Of Coverage For Terrorism - Sub-Limit On Annual Aggregate Basis Endorsement (IL 00 32 01 06) is used to provide coverage for terrorism acts subject to an annual aggregate sub-limit (and subject to underlying policy provisions including exclusions such as the nuclear hazard exclusion and war and military action exclusion).
These exclusions and limitations apply to “terrorism" losses as defined in the policy. The action does not have to be a “certified act of terrorism," only an act of “terrorism." Remember, though, these are used only in the absence of TRIA due to its expiration.
If there is a gap between expiration and an ultimate reauthorization of TRIA, these endorsements may be attached. If so, this may be problematic for insureds.
Location Matters: The State in Which the Property is Located
All nine endorsements introduced above contain a fire exception that gives back coverage for direct losses caused by fire. Notice that the fire exception gives back coverage for direct loss only; even when the exception applies, there is still no coverage for indirect losses caused by the excluded acts such as the loss of business income.
However, this exception applies only in states specifically listed in the endorsement. Further, the only states the carrier will list in the endorsement are Standard Fire Policy (SFP) states that do not allow any policy to be more restrictive than the Standard Fire Policy. But, to complicate matters, some SFP states have adopted special statutory provisions allowing the exclusion of fire for acts falling within the meaning of a “certified acts of terrorism" or simply “terrorism."
Confused? Let's try to clarify the situation. Following are three lists; the first lists the SFP states that do not allow direct fire damage to be excluded. The second provides information on those SFP states that allow fire resulting from terrorism (“certified acts" or not) to be excluded, but only under specific conditions; and the last lists the SFP states that allow fire to be fully excluded when the damage is caused by either a “certified act of terrorism" or “terrorism" (depending on the endorsement attached).
SFP States that Do Not Allow Fire to be Excluded
- California: West Ann. Cal. Ins. Code § 2070; West Ann. Cal. Ins. Code § 2071
- Georgia: G.A. Code Ann. § 33-32-1
- Hawaii: HRS § 431:10-210 & Memorandum 2007-6 issued 12/27/07
- Illinois: 215 ILCS 5/397
- Iowa: I.C.A. § 515.109
- Maine: 24-A M.R.S. A. § 3002
- Missouri: 20 CSR 500-1.100 & Bulletins 2002-03 and 2003-01
- New York: McKinney's Insurance Law § 3404
- North Carolina: N.C.G.S.A. § 58-44-20
- Oregon: O.R.S.§742.206 to 742.242
- Washington: RCWA 48.18.120; RCWA 48.18.140
- West Virginia: W.Va. Code, § 33-17-2
- Wisconsin: Bulletin 2-7-2008 issued 2/07/08
SFP States that Allow Fire to be Excluded in Certain Circumstances
- Arizona: Cannot be applied to buildings w/4 dwelling units. A.R.S § 20-1503
- Connecticut: Tied to the expiration of TRIA. C.G.S.A. § 38a-306; C.G.S.A. § 38a-307a. Statute does not allow the exclusion of terrorism in condo policies but may exclude in other commercial property policies.
- Massachusetts: Appears to allow the exclusion under M.G.L.A. 175 § 99 - unless TRIA expires.
- Nebraska: Only applies if the terrorism loss is caused by nuclear reaction, nuclear radiation or radioactive contamination. Neb. Rev.St. § 44-501.01.
- New Jersey: Only if property premium greater than $10,000 - N.J.S.A. 17:36-5-20 and 17:36-5-20b
- Oklahoma: Statute reads, “F. Notwithstanding any other provision of this section, the Insurance Commissioner may approve for use within the state any form of policy with variations in terms and conditions from the standard fire insurance policy provided for in this section." This may allow the exclusion of the fire following coverage, but the wording does not specifically address terrorism and fire following. 36 Okl.St.Ann. § 4803
- Rhode Island: Exclusion allowed only for large commercial risk specifically described in the statute. Gen. Laws 1956, § 27-5-3; 27-65-1
- Virginia: Excludes coverage unless TRIA expires. VA Code Ann. § 38.2-2102
SFP States that Allow Fire to be Excluded with No Conditions
- Idaho: I.C. § 41-2401
- Louisiana: LSA-R.S. 22:1311
- Michigan: M.C.L.A. 500.2834
- Minnesota: M.S.A. § 65A.01
- New Hampshire: N.H. Rev. Stat. § 407:22
- North Dakota: NDCC 26.1-39-06
- Pennsylvania: 40.P.S. § 636
If the insured property is located in an SFP state that does NOT allow the policy to exclude direct damage by fire, confirm it is listed on the endorsement. For properties with conditions, confirm whether the condition applies and confirm the state listed on the endorsement is the condition does not apply. Properties within the last list will not be listed by the underwriter, but it doesn't hurt to ask (mentioning that it's a Standard Fire Policy state).
What is Excluded?
Only two exclusionary triggers are found within these nine endorsements. Depending on the endorsement, either or both “Certified acts of terrorism" or “Terrorism" is excluded.
Both are defined terms.
- "Certified act of terrorism" means an act that is certified by the Secretary of the Treasury, in accordance with the provisions of the federal Terrorism Risk Insurance Act, to be an act of terrorism pursuant to such Act. The criteria contained in the Terrorism Risk Insurance Act for a "certified act of terrorism" include the following:
1. The act resulted in insured losses in excess of $5 million in the aggregate, attributable to all types of insurance subject to the Terrorism Risk Insurance Act; and
2. The act is a violent act or an act that is dangerous to human life, property or infrastructure and is committed by an individual or individuals as part of an effort to coerce the civilian population of the United States or to influence the policy or affect the conduct of the United States Government by coercion.
- "Terrorism" means activities against persons, organizations or property of any nature:
1. That involve the following or preparation for the following:
a. Use or threat of force or violence; or
b. Commission or threat of a dangerous act; or
c. Commission or threat of an act that interferes with or disrupts an electronic, communication, information, or mechanical system; and
2. When one or both of the following applies:
a. The effect is to intimidate or coerce a government or the civilian population or any segment thereof, or to disrupt any segment of the economy; or
b. It appears that the intent is to intimidate or coerce a government, or to further political, ideological, religious, social or economic objectives or to express (or express opposition to) a philosophy or ideology.
Only three of the endorsements apply the “certified acts of terrorism" wording, the Exclusion Of Certified Acts Of Terrorism Endorsement (IL 09 53 01 15), Exclusion Of Certified Acts Of Terrorism Involving Nuclear, Biological, Chemical Or Radiological Terrorism; Cap On Covered Certified Acts Losses Endorsement (IL 09 86 0 15), and Limitation Of Coverage For Certified Acts Of Terrorism (Sub-Limit On Annual Aggregate Basis) Endorsement (IL 09 87 01 15). The remaining six introduced previously exclude or limit losses caused by acts of “terrorism."
Answering the Question
This article has taken the long way to finally answer the question, do the actions of the protestors, rioters or even a “terrorist group" trigger the exclusions or limitations found in the various terrorism endorsements?
Unfortunately, there are two answers: “no" and “maybe." At least “yes" is not one of the answers.
First, the answer to the question is not based on whether the person or group is considered a “terrorist" or a “terrorist organization." There is no mention of those terms anywhere in the endorsements. So, whether the damage is caused by terrorist is irrelevant. The exclusion or limitation applies only when the act falls within one of the key definitions, either a “certified act of terrorism" or “terrorism."
As was laid out in the article, the definition applicable is based on the disposition of TRIA:
- If TRIA is in effect, the act must be a “certified act of terrorism" to be excluded or limited.
- If TRIA has expired and has not be reauthorized, the act must fall within the definition of “terrorism" before it is excluded or limited.
“Certified Act of Terrorism"
Until the Secretary of the Treasury certifies the act, the exclusion does not apply. Regardless what a city, county, state, the President or even the press thinks about the act, only the Secretary of the Treasury can certify the act. Without this, the exclusion or limitation (based on the endorsement) does not apply. (According to the law, the Director of Homeland Security has a part, but that position is not addressed in the definition.)
If the Secretary certifies the act, two other hurdles must be jumped. The total damage of AN event must exceed $5 million. Each incident, each protest/riot, is a separate event. Proving a coordinated effort towards a single goal might be difficult if not impossible, thus, each event may require separate certification.
Second, the act must be one that is a violent act or an act that is dangerous to human life, property or infrastructure and is committed by an individual or individuals as part of an effort to coerce the civilian population of the United States or to influence the policy or affect the conduct of the United States Government by coercion. The protests were to influence the population, the looting and violent acts do not appear to have been attempts to coerce anything to change, they were just for violence and looting sake.
It is unlikely the events will reach the level of or be considered “certified acts of terrorism." Any carrier attempting to apply the exclusion or limitation absent that requirement is wrong in their denial.
This exclusion is currently irrelevant because TRIA is in effect; however, if TRIA expires and is not reauthorized, this becomes the key definition. In the absence of TRIA, the hurdles to the exclusion become lower and easier to clear.
Taken down to its basest level, triggering the “terrorism" exclusion requires only the use or threat of force or violence to coerce the public or government to alter its course of action. If this first requirement is met, the second requirement is monetary; all direct and indirect property losses throughout the US, Canada and Puerto Rico during a 72-hour period must exceed $25 million; and it must be shown that all events appear to be carried out in concert or to have a related purpose or common leadership.
Given these requirements, in the absence of TRIA, it is possible events such as the recent protests and resulting riots MIGHT trigger one of these “terrorism"-based exclusions or limitations. But because TRIA is currently in effect, this exclusion and its requirements are presently irrelevant.
Based on these requirements, it is unlikely any of the current terrorism exclusions or limitations can or will apply to damage caused by protestors, rioters or looters. Without the necessary “certification," carriers can't apply the exclusion “just because."
If TRIA is not reauthorized, the discussion changes, but that's not the case presently. In fact, this won't be the case until at least December 31, 2027.
Click here for an interesting review of the history of TRIA from the Congressional Research Service.
Last Updated: June 4, 2020